Extra Volatility from Oversold Conditions

By John Rothe, CMT

John Rothe CMT is the Founder and Chief Investment Officer of Riverbend Investment Management

May 23, 2022

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Last week we saw some extra volatility in the market as short-term traders tried to take advantage of the oversold conditions of the US stock market.

The S&P 500 gained 4% during a three-day mini-rally, only to give back the entire gain mid-week.

Investors also got a first-hand look at the impact high fuel costs are having on retailers.

Last week, Target reported that its transportation costs exceeded $1 billion.

Additionally, Target CEO Brian Cornell said inflation is starting to have an increasing impact on earnings and that “overall costs have been rising much faster than retail prices.”

As a result, Target’s stock price dropped more than 30% last week.

Looking forward, investors are awaiting the Federal Reserve’s next meeting on June 14-15th.

The market is expecting another .50% rate hike. However, investors will be more interested in what the Fed’s forecast is for the second half of 2022.

Until then, I expect we will see additional volatility around inflation data points as short-term traders try to guess what the Fed will say next.

Chart of the Week:

The U.S. gross national debt has now reached $30.4 trillion, following a massive $7.0 trillion spike since the coronavirus pandemic took hold in March 2020.

Every one of these debt securities had to be purchased and held by an entity such as a bank, a pension fund, a foreign government, or even an individual investor.

So, who exactly is holding $30.4 trillion of Treasury securities? Wolf Richter at Wolfstreet.com parsed the data and created a below graph to explain.

In short, while foreign holdings of U.S. Treasuries have declined from 34% in 2016 to just 25% now, both the Federal Reserve and U.S. institutional and individual investors have picked up the slack and expanded their buying.  The Federal Reserve now holds 19% of all government debt.

Riverbend Indicators:

Each week we post notable changes to the various market indicators we follow.
  • As a reading of our Bull-Bear Indicator for U.S. Equities (comparative measurements over a rolling one-year timeframe), we remain in Cyclical Bull territory.
  • Counting up the number of all our indicators that are ‘Up’ for U.S. Equities, the current tally is that one of four is Positive (suggesting a short term bounce), representing a multitude of timeframes (two that can be solely days/weeks, or months+ at a time; another, a quarter at a time; and lastly, the {typically} years-long reading, that being the Cyclical Bull or Bear status).

The Week Ahead:


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John Rothe CMT

Riverbend Investment Management is a Registered Investment Advisor (RIA), established in 2006 with the primary goal to provide actively managed investment strategies to both individual and institutional clients.

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